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Moody's cuts Australia 2020 GDP growth forecast due to bushfires

Moody's cut its 2020 GDP growth forecast for Australia to 2.1% from 2.3%, in light of the destruction from the ongoing bushfires, saying the economic impact has so far been "limited" as the bushfires have mainly hit rural areas.

Lost output from affected regions, weakened consumer confidence and reduced tourism, among other factors, are expected to weigh on economic growth, with crop yields having been affected too.

Australia should be able to absorb the near-term credit impact from the ongoing bushfires, but recurring costs are set to rise over time due to increasing frequency and intensity of natural disasters, Moody's said.

"Over the longer term, if bushfires of this severity were to become more frequent, we would expect tourism and investment, especially in rural areas, to be affected," Moody's said. "We currently do not expect climate change to significantly undermine the sovereign's economic strength."

Australian states and local governments are primarily responsible for natural disaster prevention and preparing a response to such disasters. While there are various Commonwealth tools for reimbursement for up to 75% of the costs incurred, reimbursements can take several years in some cases, making the liquidity challenge the immediate and main credit implication of the bushfires.

Destruction from the bushfire season, which affected 10.7 million hectares of area as of Jan. 8, has been concentrated in Australia's New South Wales and Victoria states. That is more than 10x the area burned in the 2019 Amazon rainforest wildfires.

Moody's said that fiscal and liquidity implications for Australia should be minimal due to its fiscal strength.